Hyflux Why are electricity prices increased when the prices of gas has fallen?
A reader asked this question in the Straits Times Forum. The director of the Energy Market Authority gave this reply. Is he giving the correct picture?

This is my understanding of the electricity market. The operators have signed up for gas prices based on long term contracts. The new operators are assured of a fixed price based on the "vesting contracts", so they are largely protected. the old operators, such as Hyflux, signed on for long term gas supplies at high prices and have to sell them at low prices due to the oversupply of electricity. This is how Hyflux got into financial trouble.

Right now, the wholesale electricity market comprised of a mix of power suppliers who enjoy the relatively high prices offered by the "vesting contracts" and other suppliers who have to take deep losses due to the oversupply. 

The average prices in the wholesale electricity market is probably higher than the prices that can be provided under the current gas prices, due to the long term contracts. 

The reply from the EMA is probably correct, although it is somewhat brief. 

However, his explanation did not provide the full picture. The electricity price charged by SP Services to their consumers has been increased.

However, many consumers have signed a contract, usually for one year, with a electricity retailer and enjoy a discount of about 25% off the benchmark prices charged by SP Services. Some are still paying the higher prices charged by SP Services, due to ignorance.

This is quite messy and confusing. 

It would have been better for SP Services to charge a lower price for their electricity, maybe 20% less that the current prices, to be fair to consumers who did not know how to move to the alternative suppliers.  SP Service can afford to reduce their prices as they are enjoying a high margin under the current pricing. 

Tan Kin Lian

Vote - should SP services reduce their electricity prices by about 20 percent?
 

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